• Asian equity markets eventually traded mostly higher as headwinds from Wall St were eventually counterbalanced by regional data
• UK PM Johnson threatened a snap election after Parliament voted to approve a motion to seize control of Parliamentary time to try and block a no deal
• Italian 5SM members backed the formation of new government with PD following online vote
• Fed's Bullard said a 50bps cut would align the Fed with market expectations and that the policy rate is too high
• Looking ahead, highlights include EZ & UK Comp & Services PMI, EZ Retail Sales, US Trade, Canadian Trade, Fed's Beige Book, BoE QIR Hearing, Fed's Williams, Kaplan, Bullard, Bowman, Kashkari & Evans, ECB's Lane, Mersch & de Guindos

ASIA-PAC

Asian equity markets eventually traded mostly higher as the headwinds from Wall St, where the S&P 500 and DJIA snapped a 3-day win streak due to ongoing trade uncertainty and weak ISM Manufacturing, was eventually counterbalanced as data from the region provided some encouragement. ASX 200 (-0.6%) and Nikkei 225 (+0.1%) were mixed with broad weakness seen across Australia’s sectors as participants digested GDP figures which showed growth slowed to its weakest since the GFC as expected and with a cut at next month’s RBA meeting seen as a coin flip. In terms of sectors, the top-weighted financial industry was among the laggards, although gold miners bucked the trend on recent strength in the precious metal. The Japanese benchmark was indecisive but pared opening losses as it found mild support from favourable currency moves, while Hang Seng (+1.0%) and Shanghai Comp. (+0.2%) were positive after Chinese Caixin Services PMI topped estimates to print a 3-month high with Hong Kong the outperformer amid declines in money market rates and with a surge in WH Group after China announced incentives to support the pork industry including waiving highway transportation fees. However, gains in the mainland were restricted amid a continued PBoC liquidity drain and ongoing trade uncertainty after President Trump reiterated China will get a tougher deal if he wins the 2020 elections and was said to be angered by China's tariff retaliation that he wanted to double the tariffs but resorted to a 5% hike after consultations. Finally, 10yr JGBs were lacklustre amid the indecision in Japan and a lack of BoJ presence in the market, which saw prices retrace some of the recent gains.

PBoC skipped open market operations for a net daily drain of CNY 60bln. (Newswires)

PBoC set CNY mid-point at 7.0878 vs. Exp. 7.0998 (Prev. 7.0884)

Chinese Caixin Services PMI (Aug) 52.1 vs. Exp. 51.7 (Prev. 51.6); 3-month high. (Newswires) Chinese Caixin Composite PMI (Aug) 51.6 (Prev. 50.9)

US President Trump was reportedly so angered by China's latest tariff retaliation that he wanted to double the tariffs but resorted to a 5% hike after speaking with CEO's, according to three sources cited by CNBC. (CNBC) 

UK/EU

UK Parliament voted to approve motion to seize control of Parliamentary time to try and block a no deal as expected with the motion passed by 328 votes in favour vs. 301 against. (Newswires)

UK PM Johnson reiterated he believes he will get a deal with Brussels and the UK will leave on Oct 31st without a deal if needed, while he added an election will be the only way to resolve this if lawmakers vote for Brexit delay. There were earlier reports that UK PM Johnson loyalists in the lords reportedly tabled 90 amendments to the opposition business motion for today. (Newswires)

UK government sources confirmed 21 rebels will be kicked out of the party including former chancellor Hammond, while there were also reports that Tory rebel Bebb said he will vote against an election today along with other rebels, whilst the Tory party are set to break convention and will stand against Speaker Bercow in the next general election by lining up a ‘Brexiteer’ to take his seat. (Newswires/BBC/ITV/Telegraph)

UK opposition Labour leader Corbyn suggested they will not vote for a general election before an extension to leaving the EU. (Newswires) UK Labour leadership will reportedly try and block an election if it is at a time of Boris Johnson's choosing, while it was also reported that 17 Labour MP's are planning to amend today’s anti No-Deal bill to call for the latest version of the Theresa May’s deal to be put to parliament. (Newswires/BBC/Twitter)

Reports indicate that only 24 people are working with UK PM Johnson's top Brexit Official Frost on the renegotiation of the Brexit deal, which is significantly below the over 100 officials under former PM May’s government. (Sky News)

EU Commission is to propose on Wednesday to use the EU solidarity fund to help EU countries hit by Brexit in a no deal scenario which would use all existing instruments for support and direct financial support for EU farmers. It was also separately reported that EU Member states have been told by the EU Commission task force that the UK is reneging on its commitments to protect the all-Ireland economy. (Newswires/Twitter)

Ireland Finance Minister Donohoe said any future Brexit extension depends on rationale and would have to be a significant political reason. (Newswires)

ECB's Villeroy said it is clear monetary policy needs to maintain its full support and be ready to strengthen it, while he added that ECB has option of re-starting APP at any time but questioned if now is the right time and noted the priority today is to better anchor inflation expectations to our target which should be tackled by reinforced guidance. (Newswires)

ECB’s Muller reiterated there is no strong case to resume bond buying and market expectations on stimulus have gone too far, while he is going into next week’s meeting with an open mind but thinks a rate cut should be the first option if needed. (Newswires)

Italian 5SM members backed the formation of new government with PD following online vote (79.3% in favour, compared to polls forecasting 51%). (Newswires) As such, Acting PM Conte is expected to meet today with President Mattarella to form a new coalition government.

FX

DXY slipped back below 99.00 after yesterday’s ISM data, with renewed criticism by US President Trump on the Fed and signs of a shift in tone from Fed’s Bullard towards a 50bps cut, providing no favours for the greenback. As such, its major counterparts held on to recent gains although further upside in EUR/USD was restricted amid expectations for a stimulus package at next week’s ECB meeting, while GBP/USD reclaimed the 1.2100 handle after Parliament approved the motion to seize control of Parliamentary time in an attempt to block a no deal which prompted the government to respond with an election motion as anticipated. Elsewhere, USD/JPY was choppy in which it tested 106.00 to the upside and antipodeans were firmer due to the broad USD weakness and stronger PBoC reference rate setting, as well as the inline Australian GDP and Chinese Caixin Services PMI beat.

Australian GDP (Q2) Q/Q 0.5% vs. Exp. 0.5% (Prev. 0.4%). (Newswires) Australian GDP (Q2) Y/Y 1.4% vs. Exp. 1.4% (Prev. 1.8%) 

COMMODITIES

Commodities were mixed overnight with mild gains in WTI crude futures after reclaiming the USD 54.00/bbl level with the upside a function of a weaker greenback and improved overnight risk tone, while focus turns to the looming inventory data beginning with the APIs later today. Elsewhere, gold prices partially retraced some of yesterday’s USD-induced rally after the momentum was stalled by resistance at USD 1550/oz, and copper eked mild gains as the risk tone gradually brightened post Chinese PMI data. 

Russia Energy Minister Novak said recent changes to Saudi Arabia's oil management will not hurt cooperation between Russia and Saudi, adding he will still cooperate with Saudi Energy Minister Al Falih and will meet him in Saudi Arabia this month. Furthermore, Novak stated that Russia will continue cooperation with OPEC and is ready for gas talks with Ukraine and EU. (Newswires)

GEOPOLITICS

Iran official confirmed it will return to nuclear deal only if it receives USD 15bln for oil sales in 4 months. (Newswires)

US

The TPLEX bull steepened as a tumbling-into-contraction US ISM Manufacturing PMI raised the chances of Fed easing at its September meeting. However, prices since came off their highs, likely a function of the large slate of corporate issuance – 21 IG deals – but desks noted a large chunk of said issuance is expected to swap, providing a limit to the fade. At settlement the curve was generally steeper with the 2s30s widening by over 3bps, although the 5-year yield fell by just under 4.5bps which was slightly more than the 2-year yield’s decline. US T-note (U9) futures settled 13 ticks higher at 132-04.

Fed's Bullard (Voter, Dovish) said a 50bps cut would align the Fed with market expectations and that the policy rate is too high, while he suggested it is better to get to the right point now rather than in small steps and that aggressive action is needed given the fall in yields as well as trade impact. (Newswires)

Fed's Rosengren (Voter, Hawkish Dissenter) said no immediate Fed action is needed if data stays on track but added the Fed should cut rates aggressively if risks materialize. Rosengren also commented that US economic conditions are relatively benign and that trade disruption, as well as global economic weakness pose risks to US economy although he suggested that elevated risks have not become a reality and it is a good time to watch incoming data carefully. (Newswires)

US Chamber of Commerce’s Donohue said he thinks if the USMCA deal is passed, it would send a positive signal to China and that he believes congress has enough votes to pass the USMCA deal right now. (Newswires)